Report: Public retirement program for private-sector workers feasible

BY MICHAEL C. JULIANO REPUBLICAN-AMERICANKevin Lembo, State of Connecticut comptroller, works in his office in Hartford on Dec. 30. Lembo is co-chairman of the Connecticut Retirement Security Board, which on Monday released a study touting the feasibility of a public retirement program for private-sector employees. Republican-American Archives.

Workers for businesses without a retirement plan may have another way to build a nest egg for life after work, according to a new report.

The Connecticut Retirement Security Board today submitted an analysis to the state legislature that states a public retirement program for private-sector employees is financially feasible under a range of market scenarios and plan designs. Connecticut is the first state in the nation to complete a market feasibility study of such a plan to address retirement financial insecurity, the board said in a news release.

In developing a program model, the board focused on the policy goals of increasing retirement security through a low-cost prefunded retirement savings program that requires a minimal amount of financial sophistication, according to the 48-page report. The board was required to submit its findings by Jan. 1 and is now working on legislation to implement the program.

The report’s highlights include:

— The proposed program would likely serve at least almost 600,000 state residents with no access to workplace-based retirement savings. Between 2000 and 2010, employers offering a retirement plan fell from 66 percent to 59 percent, according to Connecticut-specific data from the Schwartz Center for Economic Policy Analysis at The New School in New York City.

— The program would not be mandatory for businesses that already offer a 401(k) plan or other workplace-based retirement savings option to workers, the report said. Further, it would not require participating employers to contribute to the program but they would need to set up a payroll deduction mechanism for workers. Employees would be automatically enrolled in the program but could opt out of it, the report said.

— The financial analysis concluded that the program would need about $1 billion in assets to become financially self-sustaining. At a 6-percent default contribution rate, it should reach that threshold at the end of the second year and repay any estimated upfront costs and ongoing annual expenses between the third and fifth years.

— Individual Retirement Accounts are feasible and suitable structures for the program, particularly with regard to account portability. The board recommends both traditional and Roth IRAs.

— The board recommends that the program be made available to all employees — both part-time and full-time — at the Connecticut location of a business or nonprofit organization that offers enrollment in the program, as long as the employee has worked there for at least 120 days.

— The board recommends the legislature create an implementing board that oversees an independent entity responsible for managing the program “with a maximum of transparency and reports to the legislature annually.”

Creation of a public retirement program for workers without access to a workplace-based retirement savings plan would help employees by giving them a tool to save for retirement, AARP Connecticut spokesman John Erlingheuser said. It would also benefit employers without retirement savings plans by giving them an added benefit to offer prospective workers, he said.

“It’s a win-win all the way around,” he said.

Workers are 15 times more likely to save for retirement if they can do so through a payroll deduction at work, AARP Public Policy Institute studies show.

The legislature established the Connecticut Retirement Security Board in 2014 to submit evidence-based recommendations on forming a retirement plan for the state’s private-sector workers who have no access to workplace savings. The board is co-chaired by State Comptroller Kevin Lembo and State Treasurer Denise L. Nappier.

Lembo said in a statement that the program would help workers forced to delay retirement due to insufficient savings as well as the overall state economy.

“This report … confirms that there is a feasible option to help address Connecticut’s growing retirement gap,” he said.